Archive for the ‘Breaking – Antitrust – News’ Category
Google’s revised commitments proposal leaked
Consumer Watchdog, a US organization traditionally positioned againts Google, has just made available leaked on its website the (supposedly confidential) new version of Google’s proposed commitments (see here: http://www.consumerwatchdog.org/resources/googlesettlment102113.pdf ) together with the Commission’s questionnaire to interested third parties (see here: http://www.consumerwatchdog.org/resources/euquestions102113.pdf).
This organization had threatened Google with making the proposal public in case Google didn’t do it (see here: http://www.consumerwatchdog.org/newsrelease/consumer-watchdog-challenges-google-make-eu-antitrust-settlement-offer-public-us-public). Julian Assange and Edward Snowden would may applaud the move, but I’m not so sure as to DG Comp (the fact that the names, telephone numbers and emails of its case handlers have also been made public as part of the questionnaire might contribute to flooding -even more- their inboxes…).
I’d bet that Consumer Watchdog has received some sort of advice under EU law and learnt that, interestingly, the Commission has no legal basis to act in a situation like this. Isn’t that a significant procedural gap?
You already know my thoughts about the substance of the previous proposal (if not, click here: https://chillingcompetition.com/2013/06/13/preliminary-thoughts-on-googles-proposed-commitments/ ), so not much else to say on that front.
The Golden Rule
In the new yesterday: Microsoft and Apple have opened another war front by seeking injunctions against Google and Samsung (and other Android players) in the context of patent infringement proceedings.
Ahem: aren’t those guys meanwhile complaining of abusive injunction seeking by Motorola Google before the Commission?
And in the news today: the hedge fund SAC Capital agreed to pay $1.8 billion in fines. You read well: $1.8 billion, or more than a repeat offender like MSFT… Who said stellar antitrust fines have something special…
And there’s more: they also agreed to close their investment advisory business!
With this background, I’d just love to hear more on the welfare losses inflicted by insider trading v. those attributable to cartels.
Samsung offers commitments to appease DG Comp
The most important (antitrust-related) news last week was the European Commission’s announcement that it will market test a commitment proposal submitted by Samsung regarding the enforcement of its SEPs (Standard Essential Patents) related to mobile communications.
As you know, the Commission considered in its December 2012 Statement of Objections that the seeking of court injunctions by Samsung in relation to SEPs which it had committed to license on FRAND terms, or that third parties (i.e. Apple) were apparently willing to agree to license on FRAND terms, could amount to an abuse of dominance, because “access to patents which are standard-essential is a precondition for any company to sell interoperable products in the market” (press release dixit; we’ll come back to this phrase at the very end of the post). The theory goes that the challenged enforcement of SEPs could allow Samsung to obtain licensing terms that the licensee wouldn’t have agreed to absent the threat, and that this “undue distortion of licensing negotiations” would harm consumers in a number of different ways.
[Query 1: is this an exclusionary abuse? an exploitative one? both?; Query 2: Would an alleged abuse of this sort lend itself to the application of the Guidance paper?; Query 3: If the answer to query 2 is “no”, then what are the criteria to undertake a legality assessment of a situation like this? Query 4: How does one assess the likelihood of anticompetitive effects in a situation like this?; Query 5: can you distinguish a willing licensee from a non-willing one without taking a view on what’s FRAND? (I guess the proposed solution arguably gives an answer to this 5th question; if someone’s willing to accept the proposed framework… ); Query 6: Was Apple -the de facto complainant- a willing licensee in this case?].
Samsung (which just before receiving the SO had unilaterally withdrawn all its European SEP-based injunction claims) has now offered to refrain from seeking injunctions for past, present and future mobile (smatphone and tablet) SEPs for a period of five years againts any company adhering to a given licensing framework. As explained by the Commission itself (and here I’m “scraping” its Press release) “the licensing framework consists of: (i) a negotiation period of up to 12 months and (ii) if no agreement is reached, a third party determination of FRAND terms by either a court or an arbitrator, as agreed by the parties. If the parties cannot agree on either submitting to court or arbitration, the parties will have to submit to arbitration“.
The Commission has also published a Q&A document. The full version of the proposal is available here.
Some well known commentators in the patent blogosphere swiftly commented on the proposal in a critical manner (see “EU Commission market-tests totally insufficient FRAND commitments offered by Samsung“). My preliminary take is that, even if some issues may (inevitably?) be left open, this proposal would shed some welcome light on a much contentious subject.
We’d be happy to host a discussion in Chillin’Competition, and welcome the views that any of you might have with regard to both the case and the commitments proposal.
Let me get the ball rolling:
Antitrust tidbits
– On Friday Brazil’s CADE announced that it’s also investigating Google pursuant to a complaint filed by Microsoft (see here). The investigation appears to address the very same practices previously investigated by the FTC and DG Comp, on which we’ve already commented ad nauseam. I may reduce my coverage of all Google-related issues (despite the attention we’ve paid to that case in recent times, there’s world beyond that in antitrust), but given that my firm is finally! currently betting big in Latin America (see here), I’ll now be spending more time looking at competition law developments over there, and possibly commenting on them here. Btw, if you’re interested, there is a very good blog on competition law in Latin America.
– Some of you may have wondered about how the Federal Government shutdown in the States is affecting antitrust enforcement. If that’s the case, here are the contingency plans set up by the DOJ and the FTC. On a non-antitrust related note, I’d strongly recommend you to check out Jon Stewart’s hilarious coverage of the shutdown: Rockin’ Shutdown Eve
– Headhunting season remains open in the Brussels legal market, with David Hull also leaving Covington (third partner to leave in recent weeks following Lars Kjolbye and G.Berrisch) to join VanBael & Bellis. Speaking of headhunting, for some interesting thorughts on the Brussels recruiting world, check out Steve Meier’s blog.
– A friend sent me this piece from abovethelaw.com on 10 Reasons to Leave BigLaw. Don’t think that a good part of what it says applies to everyone, but it’s always good to measure your choices against a contrarian -even if arguably exaggerated- view.
– Certainly the most relevant thing that happened in the antitrust field in the past few days (or maybe not) was my presentation about Interoperability in the payments industry last Thursday in Brussels 🙂 Here’s my presentation: Interop_Payments_Lamadrid (only makes sense if you click on slideshow).
Until I was invited to do this I’d frankly never paid much atention to the much-hyped mobile payment fever, but have now discovered a most interesting area. As I explained at the conference, if smartphones and payments have received so much antitrust scrutiny on their own, their marriage will be something like an antitrust lawyers’Nirvana!
The sector shares all the interesting features of high tech (multi-layered, multi-sided, strong network effects, rapid evolution, etc.) but has the peculiarity to feature both strong incumbents and stong entrants (traditional payment service providers, mobile network operators, tech companies…), all of which enjoy some degree of market power that they’re trying to leverage. The business strategy aspects of it are most interesting: everyone is setting up alliances (often with natural competitors), often betting on multiple horses, and at the same time acting unilaterally not to renounce the opportunity to reign the market (hence the Game of thrones slide). At the same time, we’re told that all players will end up holding hands and competing happily in an interoperable candyland where consumers’ life will be made easy and pleasant (hence the following slide). My bet is that on that road a number of interesting competition issues will arise, notably concerning access to the “secure element” (which is the key to the provision of m-payment services).
Some thoughts on the new anti-Google (Android) complaint (Post 3/3): Bundling allegations
[This is the third post in a series; click here for Post 1 (on background + market definition), and here for Post 2 (on predatory pricing claims)]
Even though the allegations over the free distribution of Android have predominantly caught the public’s eye, the complaint also appears to argue that Android is a “Trojan Horse” (a non-innovative yet effective metaphor…) used to pre-load Google apps. According to FairSearch’s press release, “Android phone makers who want to include must-have Google apps such as Maps, YouTube or Play are required to pre-load an entire suite of Google mobile services and to give them prominent default placement on the phone”.
This is, at least at first sight, more interesting than the allegations about predatory pricing. Tying/bundling issues in the smartphone industry have so far received some attention from enforcers -remember the investigation involving Apple and Flash?- and academics, but not so much. And yet they raise antitrust questions that take the discipline outside of its comfort zone.
One of the problems with this leg of the complaint is that publicly available info is scarce and that some issues are fairly technical. So don’t take what we say for granted. This is no more than an exercise for me to brag about Enrique’s industry/technical knowledge to discuss a case in detail on the basis of knowledge that not everybody has (at least I didn’t), and that I thought was worth publishing here. At the very least it has helped me learn about the industry (for some odd reason I only reflect properly about things when I write about them…). As always, happy to discuss. Btw, the post is again lenghty because I haven’t had time to write a shorter one.
1) In search of the bundle
Our understanding is that Google does not preload its apps in Android (like Microsoft actually does, for instance, with Skype and SkyDrive in Windows). This means that OEMs are free to take the Android OS without having to pre-install any of Google’s Apps (for example, Amazon has done so with the Kindle, and so has Barnes&Noble with Nook; a number of other examples are mentioned here). Android’s code is publicly available here and all OEMs can do what they please with it.
If our understanding is correct, it’s only when OEMs wish to pre-load the Google Mobile Services suite (“GMS”) that they need to pre-install its “core-apps”. In sum, if OEMs want a non-Google Android experience they can have that. If they want a sort-of-Google experience on Android (i.e. if they want the GMS) then Google asks them to preload (on a non-exclusive basis: they can preload any others) a minimum set of apps. Accordingly, it’s difficult to argue that there is a bundle of Android+Apps; at most there could be only a bundle of apps.
[Intermission 1: It’s not easy to find out exactly what’s included in the GMS/ “core apps”. The references that we’ve found (page 12) seem outdated as, for instance, they refer to Android Market (now Google Play), Google Talk (now Hangouts) and call “apps” things that we understand are rather non-user facing services (like the service that synchronizes contacts or the calendar with the cloud)].
But is there really a bundle of apps? In order for “pure bundling” to exist it would be required that the components of the bundle are not also available outside of the bundle, but that doesn’t seem to be the case either. Most of the apps in the GMS can be obtained separately from the bundle and for free (that’s the case of Youtube or Google Maps).We may be wrong here, but we think that Google Play may be the only exception, or at least the only relevant one (on this, see our point number 2 below).
Finally, since OEMs’ decision will not be affected by any financial incentive on the part of Google (because the “core apps” in the GMS are all free of charge apps), there’s no mixed-bundling either.
[Intermission 2: in my view, and in contrast to this case, mixed bundling of proprietary non-free software by certain dominant firms can actually pose serious competition problems (due to the existence of market power, the ability to toy with monopoly prices, resale prohibitions, switching costs and higher barriers to entry) and nevertheless remains mostly unaddressed by enforcers, but that’s another story].
That said, the complainants may have a point in that most OEMs will in practice want to have the GMS (see below).
2) It’s all about Play
If any of the complainants were to read the reasoning above, they would probably respond: “sure, the choice for OEMs is theoretically there, but OEMs that choose Android would always want to have the GMS, because otherwise they wouldn’t have Google Play, which means that they’d be renouncing to the very large number of apps written for Android (indirect network effects, etc)”
[A bit of background: Google Play is an application clearinghouse, an Appstore or app marketplace. These apps are a repository of other apps that you can download with a simple click. This avoids users having to obtain software from every developer; instead, there’s an intermediary that facilitates finding/acquiring/installing software. The intermediary (Google in the case of Play, Apple in the case of Appstore, etc) obtains a percentage of sales of non-free apps and facilitates the sale of free ones].
We don’t know whether the complainants have focused on that point of not. If not, they should hire us to give them more ideas 😉 . If they have –as we’d assume- then that’s a fair point.
And so what? On the other hand, however:
Some thoughts on the new anti-Google (Android) complaint (2/3): Predatory pricing claims
This is the second post in a series; click here for Post 1 (on background and dominance)
According to FairSearch (see here) “Google’s predatory distribution of Android at below-cost makes it difficult for other providers of operating systems to recoup investments in competing with Google’s dominant mobile platform“.
Unsurprisingly, this claim has spurred very strong reactions from the FOSS community, which regards it as a direct attack to the Open Source/FreeSoftware development model (see notably here, here and here). Android is indeed FreeSoftware, meaning not only that it is distributed for free, but also that it adheres to the so-called 4 freedoms: (i) the freedom to run the program, for any purpose; (ii) the freedom to study how the program works, and to adapt it to the user’s needs; (iii) the freedom to redistribute copies; and (iv) the freedom to improve the program and release the improvement to the public. This means that asking Google to start charging for Android would be akin to force it to stop supporting FreeSoftware.
A quick look, however, would reveal that this is a non-issue. It is undisputable that given Android’s FreeSoftware/public good nature Google doesn’t have the ability to set a price. The price is 0.
There are certainly interesting pricing issues to be discussed in the software industry, but, in our view, they arise with respect to proprietary software, not free software.
This should be enough to end the discussion, but if this interests you, click on the hyperlink below for more developed thoughts (if you’re lazy you can just stick to the arguments in bold to get the general idea):
Some thoughts on the new anti-Google (Android) complaint (Post 1/3)
At Chillin’Competition we have paid considerable attention to a number of IT-related competition developments, and –like most other followers of these matters in Europe and elsewhere- we have shown predilection to comment on the pending EC investigation over Google’s search practices. Nicolas, Pablo Ibañez-Colomo and myself have devoted tenths of posts to offering our –often conflicting- views on a number of issues raised in that case.
We –or at least I- had until now not really paid attention to the more recent FairSearch complaint regarding Android, and this despite the repeated warnings of Enrique Colmenero (our new associate and a geek who knows a bit about Android (he says not sufficiently well, I say it’s unbelievable), who was also the real author of my Google ppt), and who kept on telling me that the allegations in this complaint merited some public discussion. I first looked into it last week while writing the post about Skype’s integration with Windows, and realized that he’s right.
Given that all things Google raise the number of visits to the blog and spur more debate than other topics, we’re decided to comment on this yet non-case. We devoted a weekend to writing our preliminary views, and since the result is fairly lengthy we’ll be breaking the discussion into three separate posts: Today we will provide some background and deal briefly with market definition issues. Tomorrow we’ll discuss the predation claims. And Monday we’ll address the bundling allegations.
Before getting into substance, four disclaimers are necessary. The first is that by myself I wouldn’t have had the required technical knowledge to comment about this, so I’m borrowing Enrique’s (any errors, however, are only mine). The second is that we are not working for any party interested in this case and therefore comment on the basis of publicly available info (for fuller disclosure, some time ago I had two chats with someone on the complainants side as well as with someone working for Google; in both cases they let me know their views on the complaint). The third is that since we don’t want this blog to be a place to discuss cases in a seemingly one-sided way (much less when they are ongoing, like this one), we’ll be happy to open this platform to anyone willing to reason any disagreement with the opinions provided below. We don’t intend to defend a given position, but to reflect on issues that interest the antitrust community, and we are more than open to be persuaded that what we say is wrong. The fourth is that even if now criticize a complaint lodged by Microsoft FairSearch in the past we’ve also heavily critized complaints targeting Microsoft, like this one.
Bored already? If you’re stil reading I guess not, so let’s get started:
Some background to the complaint
Back in April the anti-Google alliance FairSearch (in this case only two of its members Microsoft and Nokia [Note: after I was done writing this post I learnt the news that Microsoft is acquiring Nokia’s mobile business] seem to have a real interest in the case) lodged a complaint with DG Comp alleging: (a) that by giving Android to device-makers for “free” Google engages in predatory conduct (making it difficult for rivals to recoup the investments made in developing competing mobile operating systems; and (b) that “phone makers who want to include must-have Google apps such as Maps, Youtube or Play are required to pre-load an entire suite of Google mobile services, and to give them prominent default placement on the phone”. Click here for FairSearch’s Press Release.
Rumor has it that the Commission recently sent out requests for information in relation to this complaint.
A business problem model?
In our view, this complaint can only be properly understood once one is aware about the existence of essentially 3 different business models for mobile operating systems (OSs). One is Apple’s vertically integrated model (iPhones run on Apple’s own iOS), another is Microsoft’s licensing model (OEM’s wishing to have smartphones running on Windows have to pay for a license), and the third is Android’s free software model (Android is distributed for free under a an open source license which enables licensees to do whatever they wish with the code), which has also been the model adopted by all new market entrants (Ubuntu, Firefox OS, Jolla’s Sailfish or Tizen –backed among others by Samsung and Intel-); Nokia’s Symbian (the market leader until 2011, now maintained by Accenture) was always and is also open source.
Manufacturers that are not vertically integrated at the OS level like Apple or Blackberry had to find a competitive OS, there being, until now, essentially two reliable options: Microsoft’s Windows (which they had to pay for), and Android (which OEMs obtain on a free-license basis; even if they have to pay some royalties….to Microsoft! ; some even say that Microsoft makes more money from Android than from the Windows mobile OS). Not surprisingly, the market tends to favor the open source model and, quite logically, Microsoft doesn’t like that (you’ll recall that it also “had issues” with open source OS for PCs). It’s against this background that the complaint comes, in what some see as an attempt to reverse the course of the business model that is proving most successful.
On market power/dominance as a pre-requisite.
Every press-clip citing FairSearch’s allegations refer to the claim that Android enjoys a market share of 70%. This is a bit equivocal. In reality, the fact appears to be that 70% of smartphones (leaving tablets, led by Apple, aside on the assumption that they belong to a different market) shipped in the last quarter of 2012 had Android. And in reality, usage market shares appear to show a duopoly of iPhones and Android phones (see here or here) rather than an Android monopoly; moreover, revenue-baded market shares clearly tilt the balance in Apple’s favor (as explained here) [As to the future trend: Android is certainly doing spectacularly well lately, but we bet iPhone sales will increase once Apple abandons its (rather Steve Job’s) exclusive-good marketing strategy, which is very profitable (see previous hyperlink) but has costs in terms of market share. Android phones sell very well, among other reasons, because they are often subsidized by operators; iPhones on the other hand have traditionally been quite costly. The moment iPhones are cheaper Apple’s share should increase significantly] So, in reality, Android seems to face rather intense competition from Apple’s iOS, Windows, Blackberry; even its main customer (Samsung) has also developed its own OS Bada/Tizen (it also “multi-homes” by licensing Windows for some devices).
Against the background of what would appear to be a competitive smartphone market, the way to come up with a monopoly-like share would require 1) to distinguish separate markets for tablets (where Apple is the leader) and smartphones; and 2) to also take Apple and Blackberry out from the smartphone-only calculation by defining a relevant market for licensable mobile OSs, which intuitively seems a bit of a Procrustean move.
More importantly, forget about market shares for a second. The truly relevant question is: does Android enjoy significant market power? Can it profitably raise prices or decrease output or innovation? Because Android is OpenSource/FreeSoftware (obtainable for free, its source code is entirely disclosed, it can be freely modified/”forked” [see here for “what the fork is forking”?] and appropriated by third parties: just look at Replicant, CyanogenMod, MIUI or at Amazons’ Kindle) we don’t see how Google would be able to exert market power in any way. Even Microsoft and Nokia could take Android and do what they please with it (they could even try to fork/improve it and compete with Google).
Actually, could we even say for sure that there is a “market” for licenseable OSs when all licenses (except Microsoft’s) are FreeSoftware licenses?
Moreover, and as regards innovation, there are very few markets with innovation cycles as fast as the one for smartphones’ OSs having featured a number of leaders in recent years: Palm, Symbian, iPhone, Blackberry and now Android. And this is because given the prevalence of FreeSoftware barriers to entry are extremely low. The moment someone comes up with a more innovative (better) product (including an improved version of Android unrelated to Google), Google would also lose its current lead.
But, for the sake of discussion, let’s assume that Android is dominant and look at the theories of harm, which bring up some interesting issues In our second post we’ll discuss the predatory pricing claims, and in our third post we’ll deal with the bundling aspects of the case.
Déjà vu? Microsoft announces Skype’s integration in Windows
On 15 August Microsoft announced on a blog post that Skype will come installed by default in Windows 8.1, and that it will be prominently displayed in its “Start” Menu (see Skype-right from (the) “Start”)
The news appears to have surprised many, who have publicly wondered whether Microsoft is actively looking for antitrust trouble (see notably here, here, or here).
And, of course, given my involvement in Skype-related competition matters, when I returned from my summer holidays I had a good number of emails from students, journalists, lawyers, friends and even family who were sending me the news and asking for an opinion. Since it would not be practical to reply to all those emails separately, I have decided to do it here.
[A disclaimer first: as frequent readers of this blog know I represent the two companies who chose to challenge the Commission’s decision authorizing the Microsoft/Skype deal. This means that I certainly am not an impartial observer, but it does not mean that the views set out here are to be attributed to my clients or my firm; they are exclusively mine. These views also refer to a conduct which is post-decision and therefore not the subject of the pending case].
My first comment is: Did anyone really not see this coming?
During the past few months Microsoft has pervasively integrated Skype with most of its products. Skype is now closely integrated with, for instance, Office, Office 365, Outlook, Outlook.com (formerly Hotmail), Windows Phone 8, Xbox, Lync (as announced only minutes after our Court hearing ended), and it was only a matter of time that it would come pre-installed in Windows. In the meanwhile, Skype’s only meaningful competitor in the consumer world (WindowsLiveMessenger) has disappeared and its users have been migrated to Skype. As a result, Skype’s user base has skyrocketed since the merger (going from approx. 150 to over 300 million unique monthly users), and rapidly growing.
[By the way, all this obviously voluntarily enhances the already powerful network effects at play in the only communication markets where interconnection is not mandatory, with obvious consequences]
Microsoft’s decision to bundle Skype pervasively with other Microsoft products, including – as just announced – Windows, may actually have come as a surprise to the European Commission. In its Microsoft/Skype decision, the Commission concluded that Microsoft would not have the incentive to tie Skype to other Microsoft “leading/dominant” products (e.g., para 155). No kidding.
Now let’s cut to the chase, can the integration of an application with a dominant operating system run afoul of the competition rules?
The European Commission itself has held various seemingly contradictory views over time. Microsoft, too, appears to have opposite views on this question. Let me explain this:
In the light of the spirit and the letter of the Microsoft’s 2004 infringement decision, the 2007 Microsoft Judgment, the 2009 Microsoft commitment decision, Skype’s integration with Windows would likely raise some antitrust flags (notably concerning the market for video calls, given that currently over 3 out of 4 video calls are made using PCs). As you know, in all of those precedents, the Commission and the General Court observed that pre-installation resulted in an unparalleled distributional advantage that could not be offset by the downloading of competing applications.
The Microsoft/Skype 2011 decision, however, arrived at exactly the opposite conclusion. The comments voiced out in the past few days in the media seem to have overlooked the fact that the Microsoft/Skype Decision – despite denying Microsoft’s incentives to tie Skype to its products – did actually address the possibility that Skype could be tied to Windows, and that it ruled out any competition concerns. The Decision acknowledged that pre-merger Skype was already present on approximately 60% of Windows PCs pursuant to agreements with OEMs, but alleged that there was data -not cited- showing that in practice pre-installation resulted only in a small share of Skype users (para 162). In other words, the Commission considered that pre-installation does not offer that much of a competitive advantage because users could easily and freely download Skype and other competing applications.
Query: does anyone see any inconsistencies between the Commission’s approaches to downloading? The Commission is certainly entitled to change approaches, but since the reasons for this change were not set out in the Decision, it’s difficult to identify with clarity what the Commission’s current approach to pre-installation vs. downloading is.
If you want to play more “find the differences”, try comparing the Commission’s prospective analyses and approaches to technical tying/bundling (and, for that matter, to interoperability degradations too) in Intel/McAfee (2011) and Microsoft/Skype (2011).
And whereas the Commission’s shifting viewpoints are remarkable, what is more striking is that Microsoft is, as of today, advocating two opposite legal standards, one for itself and another for Google:
As you may remember, back in April the FairSearch coalition (led in this case by Microsoft and Nokia) lodged a complaint against Google arguing that Google is abusing Android’s alleged dominance in the market for mobile operating systems by bundling certain “core Apps” with its operating system.
[The way I see it, in the case of Android the dominance and the bundlling are much more doubttful, but that is another story, and one interesting enough -I’ve just realized- to deserve some specific comments in the coming days].
So, in one case Microsoft is claiming that the pre-installation of Google apps on Android phones constitutes an abuse of a dominant position in the market for mobile OSs (no matter if users are free to download any competing application; btw, Skype for Android has no less than 100 million users!), but, at the same time, having Skype pre-installed in the dominant PC OS poses no problem (precisely because users are free to download other applications).
Anyone else sees any issue conflict?
Reverse payments (Pay for delay settlements) in EU and US antitrust law (Part I)
I’ve somewhat of a bad conscience for not having been able to cover this topic before (not least because one of you has been pestering me with emails asking when I’d write about it…)(btw, the same person has also gently and repeatedly reminded me to post a link to his new –and actually very interesting (really)- paper, so here it is; titled The Law of Abuse of Dominance and the System of Judicial Remedies).
As you may have read, within a lapse of two days the US Supreme Court (SCOTUS) and the European Commission issued, respectively, an opinion (in FTC v Actavis) and a decision (against Lundbeck and others) addressing reverse payments.
Most of the superficial client alerts analyses I’ve seen merely note the time coincidence and suggest a certain convergence in the US and EU approaches to the issue. The headline goes that the Commission imposed its first fine for this practice, and that the SCOTUS reversed a Circuit clash, holding that reverse payments are subject to the rule of reason and dismissing the “scope of the patent test”. In my view, this reading, although right, is also incomplete and hides a few of the interesting issues that have surfaced in these cases.
If I were to start explaining what reverse payments are, the background to these cases and the content and implications of the opinion and the decision you’d probably be tempted to stop reading after a few lines. In order to avoid that, instead of following the normal structure of a post, this will be a reverse post on reverse payments:
Today we will provide you with some comments on these developments and of why they can be relevant beyond their specific context. Tomorrow (if I’ve time) or on Friday (more likely) we’ll offer you our vision on the background to these cases and an overview of the opinion and the decision. I trust this will enable (i) connaisseurs to skip the background stuff; and (ii) those not initiated in these issues to grasp their relevance and to become interested in reading more about them.
Some reactions to the SCOTUS opinion and to the Commission’s decision
– Leaving the pharma sector aside, and looking at things from a broader perspective, the underlying philosophy of the Opinion in relation to the IP regulation/antitrust interface (condensed in this statement: “it would be incongruous to determine antitrust legality by measuring the settlements anticompetitive effects solely against patent law policy, rather than by measuring them against procompetitive antitrust policies as well”) appears to be at odds with the principles governing the interface between sector-specific regulation and antitrust established in Trinko . It’s therefore not surprising that Justice Scalia, that wrote the majority opinion in Trinko, has joined Roberst and Thomas in a dissenting opinion here. So, does this signal a change of trend in the way the SCOTUS interprets antitrust law? The 3 dissenting Justices at least do seem to see it that way, and argue in strong terms that the opinion overturns understood antitrust.
– On a very related but more specific note, although I haven’t read any comments on this point I see common link between these two recent cases on reverse payments and other landmark cases like Linkline US) and Telia Sonera (one of the most controversial EU cases in recent years). In all these cases some party relied on the idea that “he who can do the most can do the least”. In Actavis and Lundbeck the argument was that a patent holder was entitled to exclude competition provided that it remained within the limits of the “scope of the patent”; and in TeliaSonera and Linkline it was that if refusing to supply would not be deemed abusive, there could be no room to find an abusive margin squeeze.
This argument, however, had only been accepted by the SCOTUS in Linkline, with European Courts taking a different line in the most criticized TeliaSonera Judgment, so it’s not surprising (at least to me) that the Commission has rejected it in Lundbeck, but it’s remarkable that the SCOTUS has taken a different line in Actavis.
By the way, I leave one provoking thought I heard from someone the other day discussing TeliaSonera: “I don’t have an obligation to let anyone into my home, but once they’re inside it would be illegal for me to kick them out violently…”. (I expect some virulent reactions to this; happy to discuss).
– Are the EU and US approaches converging with regard to reverse payments, or even with regard to the assessment of horizontal agreements more widely? Not really (leave aside the synchronized summer desk cleaning timing coincidence). Sure, both the SCOTUS and the Commission see a margin for potential restrictions of competition in reverse payments, but they have chosen very different approaches. And whereas the theoretical difference does not appear to be large, the practical consequences hugely differ. In the US reverse payments will need to be assessed under the rule of reason –which imposes a very considerable burden on plaintiffs- (as we will explain in our forthcoming post, the Supreme Court has dismissed the “quick look approach” proposed by the FTC). In Europe, on the contrary, the Commission has decided to take the usual “object” shortcut. This is key, for an “amorphous rule of reason” (an expression actually used in the dissenting opinion in Actavis) analysis normally means difficulties for the plaintiff, whereas a “bifurcated” 101(1) / 101(3) analysis generally results in condemnation because of the (anticipated and worrysome) death of Art. 101 (3).
(Interestingly, the FTC wasn’t able to give a satisfactory answer to a very pertinent question asked by Justice Sotomayor at the hearing: “Why is the rule of reason so bad?”)
If you ask me, I would have no objection to the EU solution if Art. 101(3) were an effective possible way out (this was basically the ECJ’s stand in GlaxoSmithkline) and I would have no objection to the US approach if the burden of proof incumbent upon plaintiffs was a bit less burdensome. As things stand, it was probably not feasible to strike the right solution in theory (where I think the SCOTUS’ one is preferable) as well as in practice (where the Commission’s will likely yield better results) for these cases.
To be continued…
Chillin'Competition 